Tuesday, 23 April 2013

From Customers To Voters: Drawing The Line Against Energy Profiteers

Drawing The Line Against Misconduct: Theodore "Teddy" Roosevelt (1858-1919) twenty-sixth President of the USA and champion of the progressive regulation of America's over-mighty corporations and their "robber baron" proprietors. The Labour-Green plan for regulating the New Zealand energy market falls squarely within the Rooseveltian tradition.
IN ITS BROADEST SENSE, socialism is about putting society’s needs ahead of the market’s choices. Indeed, socialism comes into being only when it makes more sense to be a voter than a customer: a citizen than a consumer. In this sense, at least, the Chief Executive of Mighty River Power, Doug Heffernan, is right: the Labour-Green policy package, Energising New Zealand, is “a socialist consumer model”.
But, the economic commentator, Bernard Hickey, is also right when he says:
“In the world of corporate and government relations there’s a vague concept referred to as a ‘licence to operate’. It means that large companies or departments know there’s only so far you can push the public and politicians before they react by, in effect, removing that licence to operate and regulating profits lower.”
That point has been reached many times before in history, and the result has always been the same: the large companies and departments lose.
The period of American history spanning 1890 to 1910 was known as the “Gilded Age”. The fruits of America’s break-neck industrialisation had been captured by an infinitesimally small percentage of the population. These “robber barons”, as they came to be called, flaunted their unprecedented wealth by constructing mansions and castles modelled on those of the European aristocracy. Names like Vanderbilt, Rockefeller, Morgan and Carnegie became synonymous not only with great fortunes, but with great power.
Too much power.
Curbing the power of the robber barons of the Gilded Age was the mission of the US political movement known as “Progressivism”. It’s most effective advocate was President Theodore Roosevelt. His summation of the Progressive Movement’s attitude to the great American corporations provides a useful, and eloquent, definition of the licence of operate:
“Our aim is not to do away with corporations; on the contrary, these big aggregations are an inevitable development of modern industrialism, and the effort to destroy them would be futile unless accomplished in ways that would work the utmost mischief to the entire body politic. We can do nothing of good in the way of regulating and supervising these corporations until we fix clearly in our minds that we are not attacking the corporations, but endeavouring to do away with any evil in them. We are not hostile to them; we are merely determined that they shall be so handled as to subserve the public good. We draw the line against misconduct, not against wealth.”
“[S]o handled as to subserve the public good.” It’s a line Labour and the Greens would do well to borrow and develop. Because the opposite of “subserve” is “subvert” – and to demonstrate the meaning of subversion in relation to electricity pricing, they need only describe what happened in California when its energy needs were left to the tender mercies of an over-mighty US corporation called Enron.
Enron was revealed to be a corporation in which “misconduct” bordering on “evil” was the surest route to promotion and profit. Inevitably, the people of the United States (and of California especially) “drew the line” and Enron’s licence to operate was withdrawn.
The system of electricity pricing operating in California today is strikingly similar to the system being proposed by Labour and the Greens.
There’s a very good reason for emulating the Californians. Our energy companies may not be as red in tooth and claw as Enron, but the quantum of “super-profits” which they have extracted from the long-suffering New Zealand consumer is truly staggering.
Research undertaken for the NZ Commerce Commission by American energy expert, Professor Frank Wolak, and published in 2009, concluded that “over a period of some six and a half years the generators have exercised their substantial market power to earn market rents estimated conservatively to be $4.3 billion.”
As trade union leader, Matt McCarten, put it: “That’s $1000 profit for every man, woman and child.”
Clearly, New Zealanders have lost themselves a great deal of money by submitting docilely to the roles of consumer and customer. Voices crying in the wilderness – most particularly those belonging to long-time energy campaigners Molly Mellish and Geoff Bertram – have been telling us for years to wake up and realise how much it’s been costing us to smell the coffee.
To the undoubted relief of Molly and Geoff, Labour and Green policy-makers have finally begun to listen and now we, the consumers and customers of wildly over-priced electricity, are being invited to put aside those passive identities and become, instead, active citizens and voters.
In 2014 the Opposition parties have invited the New Zealand electorate to revoke Mighty River Power’s, Genesis Energy’s, Meridian Energy’s and Contact Energy’s licence to operate as unfettered super-profiteers. As citizens and voters we’ll finally be empowered to follow Teddy Roosevelt’s advice: drawing a line against our energy generators’ social misconduct and subserving them to the public good.
This essay was originally published in The Press of Tuesday, 23 April 2013.


geoff said...

Good article, Chris, and I especially liked how you drew attention to the word 'consumer', which has been thrashed by commentators regarding the electricity policy. Why the hell we don't just use 'people', instead of buying into the free-market speak, I don't know.
Unfortunately, of course, it isn't just the power companies that have been rent-seeking in the NZ economy. The entire country seems to be organised around playing the same trick on us, whether it is housing, food, rates or electricity.
The right-wing, who ironically justify all of their market madness in the name of efficiency, have caused the loss of potential in so many people that its probably just as well that we can't tally up the 'opportunity cost' of rogernomics because the sum would cause our eyes to bleed.

Nic the NZer said...

Well put Chris. I didn't know that this type of reform was made in California, in response to the Enron scandal, despite reading analysis of this in several places. That's interesting in itself, and obviously massively bolsters the case for this policy.

The Flying Tortoise said...

The trouble is that the issue has now become so confused that it's very hard for a person to come to a conclusive decision about what the hell is going on. I certainly cannot trust a politician to tell me what's what. I've lost it...

Jigsaw said...

I doubt that consumers will ever see any financial benefit from this scheme - even after the estimated 4 years it would take to get it underway. The Greens who appear to be wagging the Labour tail don't want cheap energy and will more than seek to recover this with their ETS style charges. Labour of course seeks to draw a veil over their last 9 years when they used every cent they could wring from electricity charges to bribe the electorate - it just got them over the line in 2005 -remember? A 72% rise in electricity charges but that was ok I guess..........

Nic the NZer said...

Nice post Chris. It's interesting that despite reading quite a lot of analysis elsewhere, I only found out here that a similar policy was the California response to Enron! That adds a lot of weight to this being a sensible well thought out policy of course.

One wonders how long the myth that a Labour/Green government would be an economic disaster for New Zealand can continue in the face of mounting contrary evidence.

David said...

Theirs quite a likeness in the photos of Teddy Roosevelt and Chris Trotter

geoff said...

@the flying tortoise...

Listen to geoff bertram on RNZ, he cuts to the chase.
The rightwing media have purposefully clouded the issue with fake complexity but it all boils down to a simple fact.

The simple and truthful story is that the generator and lines companies were allowed to increase the value of their assets on their books. This meant they were able to justify a certain profit margin based on those asset values. The need to achieve that profit margin justified them to raise prices to the point that those profits were achieved.
Both Labour and National were complicit in this because it was good for the government books.

Nobody in the media talks about this except the like of Geoff Bertram and Molly Melhuish.

Scouser said...

I agree in that power has been abused but it was abused by your favoured Labour party when it was in power.

It was the market maker and used power as a stealth tax - the super profits were government taken.

This is lazy commentary on your part and I find that unusual.

Punch said...

Interesting that the survey quoted (Frank Wolak's) was for the period up till 2009. This includes the life of the Helen Clark government where electricity prices were at their most rampant. Statistics show that power increases were modest immediately after the Bradford reforms of 1998, exploded from 2002 to 2009, and have been reigned in during the last 4 years since some tweaking was done to the regulatory authority.
The so called "super profits" were at their most rampant in the Clark years. They included David Parker's now infamous rejection of the "one buyer" concept in 2006.
It is easily proven that much of the retail price rise since 2008 .. that is the percentage above the CPI .. Is due to increases in infrastructure costs which cannot be deducted from the equation under this new Green/Labour proposal.
We should look at the facts before being swayed by a blatant politicisation of the electricity sector.

Chris Trotter said...

You're quite right, Scouser and Punch, Labour was the worst offender electricity price-rise-wise.

It was Phil Goff who first suggested (back in 2009) that the Labour Government had taken too much from the residential electricity customer, and David Parker who took up the challenge to find a solution.

"Energising New Zealand" is the result. A small, but important, step down the road to rolling back the neoliberal revolution.

I try to reward good behaviour - what do you do?

Davo Stevens said...

Fascinating discussion! There is still a belief that Labour and National are somehow different. They are not that different. Almost Tweedledum and Tweedledee.
Often in the past I have referred to them as Gnats and Gnatlites...

Yes, Helen's Labour allowed the prices of electricity to ramp up. After all her govt. was a "free Market" one just wearing a red coat.
It is pleasing to see that Labour have moved a little back toward where they used to be, supporting the ordinary working Kiwis. They still have a long way to go but.

I am not advocating Labour at all, I just want to see two parties that are so different that people can choose between them, unlike the way they have been over the last few years.

There are some merits in what they are advocating regarding power supply in NZ. We have giving the 'Free Market' a fair lash and we are finding it wanting in many areas.

Valentin said...

This is cool!